The best alternatives to the cable bundle may be coming out of the cable companies themselves.
Since Verizon Communications in April introduced cheaper, slimmed-down bundles of dozens of TV channels — as opposed to hundreds — the company said Thursday that 30 percent to 40 percent of its new Fios television customers have asked for the new packages. And in a new bet on mobile video, the telecom firm said it has signed up 25,000 people for the free streaming service Go90 that goes live later this month.
Just months ago, the idea of introducing alternatives to the fat cable bundle was anathema to an industry that has long fought to keep that profitable business model intact. But with declining ratings, falling advertising revenue and more people dropping their cable subscriptions altogether, the industry has shifted its tone.
“Obviously, we are the disruptors here,” Verizon chief executive Lowell McAdam said Thursday in an interview on CNBC. “The question is how quickly the content providers will move.”
Verizon, Dish and Cablevision were first to offer skinny bundles and streaming packages that offer smaller groups of channels over the Internet.
TV industry executives disagree how quickly the traditional cable bundle will decline. James Murdoch, 21st Century Fox chief executive, said at a Goldman Sachs conference this week that he expects “cord cutting” to decline by about 1 percent this year. But he and others predict many more offerings like Verizon’s will emerge.
“It’s a logical development,” Time Warner chief executive Jeff Bewkes said at a Goldman Sachs media and telecommunications conference this week. He said the new business models, including skinny bundles, have created revenue opportunities and larger audiences. In April, Time Warner released its $15-a-month HBO streaming app through Apple, Cablevision, Verizon and Dish. And its Turner broadcasting channels are available on Dish Network’s SlingTV service. “It’s probably good for consumers, and its good for us.”
Apple is rumored to be working on a streaming service that could be the best alternative to the big cable bundle, with local TV news, sports and the most popular channels. Hulu has aggressively invested in original content and for the rights to run in-season series such as Fox’s “Empire.”
The move toward slimmer bundles and streaming apps is a risky bet for an industry that has seen big profits from the large packages of channels that have been increasing in price and size. Indeed, Verizon has about 5.7 million Fios customers who pay at least $75 a month just for TV.
But over the past year, the industry was forced to look at new models. Ratings reached record lows for many networks over the summer. In August, overall cable TV ratings were down 9 percent. The entire media industry was hammered on stock markets after Disney lowered its guidance for cable revenue, admitting it was feeling pressure on the traditional cable bundle. ESPN, a Disney property, draws the highest fees of networks in the cable bundle. And in the second quarter, 566,000 cable and satellite subscribers canceled their service.
Potentially greater problems are on the horizon. Millennials aren’t watching as much traditional TV. Only 20 percent of consumers 18 to 34 use television as their primary source of entertainment, according to a survey by Magid Advisors. And TV industry executives are particularly worried about the growing number of younger consumers who have never subscribed to cable, telecom or satellite TV — and probably never will. In total, this group of “cord nevers” makes up about 20 percent of the people who don’t subscribe to television, according to the survey.
In all, HBO and other media firms estimate there are about 10 million broadband-only homes today, and that number can double in the next decade.
McAdam said Verizon has trained its focus on a different target: acquiring millennial users through mobile video.
“We looked at the customer segment that we want to go after, the millennials. . . . They aren’t buying linear TV,” McAdam said on CNBC. “They are just fundamentally opposed to these 300 channel bundles.”